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To protect competition in the market for prescription drugs, the Federal Trade Commission will require Teva Pharmaceutical Industries Ltd. to sell the rights and assets related to a generic cancer pain drug and a generic muscle relaxant, as a condition of its proposed $6.8 billion acquisition of rival drug firm Cephalon, Inc. In addition, the proposed settlement requires Teva to enter into a supply agreement that will allow a competing firm to sell a generic version of Cephalon’s wakefulness drug Provigil in 2012.

“This settlement preserves competitive markets for current generic drugs, which are key to holding down the cost of health care for consumers. It also ensures there will be competition among generic drugs introduced in the future,” said Richard Feinstein, Director of the FTC’s Bureau of Competition.

According to the FTC’s complaint, the acquisition as originally proposed would violate U.S. antitrust law by reducing competition in three markets: transmucosal fentanyl citrate lozenges used to treat cancer pain; extended release cyclobenzaprine hydrochloride used as a muscle relaxant; and modafinil tablets used to improve wakefulness. The markets for each of these drugs is described below.

Transmucosal fentanyl citrate lozenges are versions of the cancer pain drug developed by Cephalon and marketed under the brand name Actiq. Three generic versions of the drug, manufactured and marketed by Teva, Cephalon/Watson Pharmaceuticals, and Covidien, currently exist in the United States; this number would be reduced to two after Teva’s acquisition of Cephalon. As originally proposed, the deal would have given Teva more than an 80 percent share of the sales of the generic Actiq product.

Extended release cyclobenzaprine hydrochloride is an extended release version of the muscle relaxant Flexeril. Cephalon acquired the rights to the branded version of the drug, called Amrix, which was approved by the FDA in 2007. While no companies currently make or market a generic version of Amrix, Teva and Cephalon are two of only a limited number of suppliers that may be able to enter the market quickly with a generic product. Combining the two companies would result in less competition in the future.

Modafinil tablets are versions of the brand name drug Provigil marketed by Cephalon and used to treat excessive sleepiness caused by narcolepsy or shift work disorder. No companies currently market a generic version of Provigil, which had sales of $1 billion in 2010. Teva, Ranbaxy Pharmaceuticals, Inc., Mylan Pharmaceutical Inc., and Barr Laboratories, Inc. – which Teva now owns – all have taken steps toward entering the market, and all are eligible to seek a 180-day marketing exclusivity provided under federal law. However, each company also has signed an agreement with Cephalon to refrain from marketing generic Provigil until April 2012. The FTC contends that without the proposed settlement, Teva and Cephalon would have been two of only a limited number of suppliers of generic Provigil during the 180-day exclusivity period.

In each of the three markets, Teva’s acquisition of Cephalon would harm consumers by significantly reducing competition, leading to higher prices, the FTC contends. The proposed settlement order is designed to replace the competition lost through Teva’s acquisition of Cephalon. First, it requires Teva to sell all of its rights and assets related to generic Actiq or transmucosal fentanyl citrate lozenges, and Actiq or generic extended release cyclobenzaprine hydrochloride capsules, to Par Pharmaceuticals, Inc., a generic drug manufacturer based in New Jersey. This divestiture must be completed within 10 days of the acquisition.

Next, to remedy the consolidation of marketers of modafinil drugs during the 180-day exclusivity period, the proposed order requires Teva to enter into a supply agreement to provide Par with generic modafinil tablets in the United States for one year. This will allow Par to compete with a generic modafinil product during the 180-day exclusivity period. In addition, Par may extend the modafinil supply agreement for another year.

The Commission vote approving the complaint and proposed consent order was 4-0. The order will be published in the Federal Register shortly and will be subject to public comment for 30 days, until November 7, 2011, after which the Commission will decide whether to make it final. Comments can be submitted electronically here.

NOTE: The Commission issues a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. A consent order is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.